Labuan Trusts For Wealth Management

The concept of trust was first established in English law in the 13th century. A trust is created when assets or properties are given or entrusted to someone to hold on behalf and for the benefit of someone else. The person who creates the trust (the “Settlor”) will generally transfer assets or properties to a trustee who holds them in what is known as a trust fund. The trustee holds the trust fund for the exclusive benefit of a class of person (the “beneficiary”). The trust deed is the central governing document in any trust arrangement.

The essential elements of a trust are that the Settlor ceases to be owner of the assets or properties transferred into the trust; the trustee becomes the legal owner of the trust fund and the beneficiary as beneficial owner.

 

LABUAN TRUSTS

Labuan trusts are created under the Labuan Trusts Act 1996 (“LTA”) (updated in 2010) and the Labuan Islamic trusts established under Section 105 of the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA) in the Labuan International Business and Financial Centre (“IBFC”). Guidelines were issued by the Labuan Financial Services Authority (“FSA”) to provide further guidance on the creation of Labuan trust and Islamic trust (the “Guidelines”).

A Labuan trust can be created by a will or other instruments in writing, including through a unilateral declaration.

The trust would usually be irrevocable, although there may be some circumstances where the settlor may require the comfort of knowing he has the power to revoke the trust. However, this preservation of power can negate some of the intended benefits of setting up the trust in the first place.

It is not mandatory for a Labuan trust to be registered with Labuan FSA. However, if the Settlor opt to register the Labuan trust with Labuan FSA, any subsequent changes made by the Trustee must be submitted to Labuan FSA.

 

TYPES OF TRUSTS AVAILABLE IN LABUAN IBFC

  • Purpose Trust
  • Charitable Trust
  • Labuan Special Trust
  • Spendthrift or Protective Trusts
  • Reserved Powers Trusts

 

PURPOSES OF LABUAN TRUSTS

Individuals, families, corporations and non-profit organisations will find trusts a versatile solution for their different objectives.

 

WHO CAN SET UP A LABUAN TRUST?

Any person, individuals and corporations who are resident and non-residents of Malaysia.


PROPERTY / ASSET OF A LABUAN TRUST

  • Assets of every kind whether corporeal or incorporeal, movable or immovable, tangible or intangible, however acquired; and
  • Legal documents or instruments in any form, including electronic or digital, evidencing title to or interest in such property.

For Malaysian property, prior approval of Labuan FSA is required. The qualifying criteria for approval shall include but not limited to the following:

  • Obtain all necessary approvals from the relevant authorities in relation to the vesting of properties to the trust;
  • Properties to be vested shall be unencumbered unless necessary consents have been obtained; and
  • Properties to be vested shall be obtained through lawful means.

 

TAXATION PROFILE FOR A LABUAN TRUST

  • Based on the Labuan Business Activity Act 1990 (LBATA), if it undertakes only Labuan non-trading activity ie. activity relating to the holding of investments in securities, stock, shares, loans, deposits or any other properties by a Labuan entity on its own behalf, such activity is not subject to tax under LBATA.
  • Distributions from Labuan trust to its beneficiaries are exempted from Malaysian tax.
  • Non-Malaysian property income shall be subject to LBATA. Any income derived from Malaysian property is subject to tax under the Malaysian Income Tax Act 1967. Real property gains tax may apply on gains from disposition of real properties in Malaysia.
  • No withholding tax / capital gain tax / inheritance tax.
  • No foreign exchange controls.
  • Stamp duty exemption on instruments relating to offshore business activities.

 

PARTIES TO A LABUAN TRUST 

Settlor – Creates the trust by transfer assets or properties into a trust. Settlor may be an individual person or a corporate entity

Trustee – Holds the trust funds and responsible for its administration for benefit of the beneficiaries. Minimum one (1) trustee from Labuan trust company or Labuan managed trust company

Beneficiary – Person legally entitled to enforce and benefit from the trust. Can include individual or reference to a class, charities, minors, corporations etc.

Protector – May be appointed by settlor, who acts like a “watchdog” over the trustee for the benefit of the beneficiary. The settlor or beneficiary may also be a protector

 

DURATION OF A LABUAN TRUST

The Labuan trust may exist for a fixed period or in perpetuity as specified by the terms of the trust. Additional terms may be specified to alter, by lengthening or shortening the trust during its life-time.

 

BENEFITS OF LABUAN TRUSTS